Germany's former chancellor Gerhard Schroeder, right, speaks with CEO of state-controlled Russian oil company Rosneft Igor Sechin during a meeting in St. Petersburg, Russia this month. A small region of Siberia has become important to the Russia's energy plans.

Khanti-Mansiysk, Russia — The most surprising place you've never heard of is probably this small "national district" set in the wilds of western Siberia, where fast-paced changes may hint at the Kremlin's modernization agenda for the whole country.

Khanti-Mansiysk has twice as much oil as Libya, and accounts for more than half of giant Russia's entire production. It's only "small" by Siberian standards; if it were in the US it would be the third largest state, after Texas. If it were an independent country, it would probably be the richest per capita on earth, since its entire population amounts to just 1.5 million people.

In Soviet times this usually frigid land of peat bogs, lakes, and taiga (Siberian boreal forest) was largely a vast oil-pumping zone. The nominally autonomous Khantys and Mansis indigenous people largely remained in their traditional lives of hunting, fishing, and reindeer herding, while teams of temporary petroleum workers left little behind but vast tracts of oil-polluted taiga. Photographs of the regional capital, also named Khanti-Mansiysk, from as recently as the 1970s show little more than a big cluster of wooden buildings – constructed by political prisoners who started the settlement in the 1930s – connected by wooden walkways and divided by dirt streets.

The Soviet system remains in place, at least in the sense that virtually all oil revenue still goes straight to Moscow and is returned to the region only in the form of Kremlin-approved subsidies. And poverty is still widespread, especially among the indigenous people, but even in the capital city where thousands still live in those original wooden apartment blocs built to house prisoners.

Undeniably changing

Yet much is undeniably changing, and at an accelerating rate. The city of Khanti-Mansiysk now has a graceful modern core, with shopping malls, a convention center, luxury hotels, a university, and sports facilities built to house the International Biatholon, the Chess World Cup and other sporting events that have been attracted to the city by its local administration. In 2007 the region contracted with the English architect Norman Foster to build a 920-ft "Crystal Skyscraper" on a hill overlooking the city, which will be one of the tallest buildings in Russia when it's completed.

The region, which mostly relied on rivers for transport in the past, now has a network of fast and well-kept highways. Local authorities insist that, in partnership with the mainly Russian oil companies that operate here, the Soviet legacy of pollution has been brought under control and will eventually be eliminated.

"In the past, oil leaks were common, and nobody seemed to care. We began vigorously addressing this about 12 years ago, and we've made a lot of progress in recultivating the land," says Gennady Bukhtin, the region's deputy governor. "We have money to invest in ecology, and the oil companies have been made to understand that things have to be done differently now. There are problems, particularly due to old, leaky pipelines, but the attitude is really changing for the better."

Experts say the dominant oil companies, which include state-owned Gazprom-Neft and Rosneft, have been ordered by the Kremlin to pay more attention to infrastructure-building and environmental considerations. Partnerships with foreign oil firms have brought new standards and innovative technologies.

In many places, companies are using the Western method of fracking to revive exhausted Soviet-era oil fields. About two hours drive from the capital city Khanti-Mansiysk, a Canadian company working with Russian partners has built an expensive but radically new type of plant to save the vast amounts of gas that were formerly burned off and use some of it to power electrical generators and bring other components to market as propane and benzine.

Politics in oil

"The changes you see are the result of political will, in the first place on the part of the Kremlin," says Alexei Mukhin, head of the independent Center for Political Information in Moscow. "The Kremlin has ordered modernization in many antiquated areas of Russian life, and it does provide increased funds to carry that out. The oil companies do as they're told, and the result is a lot of improvements, new infrastructure, better conditions. It looks impressive, especially compared with the past, but it's actually very cheap to do when you think of the vast amount of revenue Khanti-Mansiysk provides to the state treasury."

Politics are not close to the surface here, where the pro-Kremlin United Russia party appears to have a lock on virtually all official posts. But one rare dissident is Yury Shagut, head of the regional chapter of the liberal Yabloko party, who insisted on a clandestine meeting in a public park. He admits that modernization is real, but complains that it's being carried out according to the design of oil companies and mainly for their convenience.

"There's a clever facade of concern about ecological issues, but it's a Potemkin village," Mr. Shagut says. "There's a lot of PR about how we must protect the environment, but the actions are much more modest. A lot has been done, that's true. But it's still all about getting the oil out, there is no effort to think ahead. One day the oil will be gone, and there will be no resources here to build ourselves a new life."

But others view it very differently.

"In the past 10 years this region has become a center of the international oil industry," says Alexei Smelov, an oil engineer who moved from the Volga city of Samara several years ago to get in on the Khanti-Mansiysk boom.

"Khanti-Mansiysk was a big wooden village in Soviet times, now it's becoming a modern European-style city. The region gets a lot of money from oil, and it's powering a transformation. Everything's becoming more modern and sophisticated, not just in the oil industry but in the whole community. You can see that in the skyline of the city. A new mentality is being formed here," he says.